Surprise Opec cut sends oil surging

Oil prices surged more than a dollar to $26.65 a barrel last night after members of the Organistation of Petroleum Exporting Countries agreed a surprise cut in supplies.

The oil cartel reduced output quotas by 900,000 barrels to 24.5m a day as Iraq returned to its table for the first time since the US invasion.

Opec president Abdullah bin Hamad al-Attiyah said the cut would start in November to stabilise the market.

The move surprised commentators since members of the cartel - which controls a third of the world's oil production - had pledged before the meeting in Vienna that there would be no change in policy.

The oil ministers are thought to have made the decision because of a recent fall in prices from over $30 a barrel in mid-August to just over $25. They feared increasing production from Iraq and non-Opec members such as Russia would send prices to the bottom of the $22-$28 target range.

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Ibrahim Bahr al-Ulum, Iraq's interim oil minister, said that, while his country remained an Opec member, it would not have to follow its quotas until production was restored to pre-war volumes.

Adam Sieminski, oil analyst at Deutsche Bank, said the cut was in line with Opec's recent policies. "They have been talking about cutting quotas when Iraq finally got back into the market and recent signs suggest that may now be happening," he said.

"If Opec members adhere to the new quota as they have recently, which means being about half a million barrels over it, the price should stabilise."

Shadow Chancellor Michael Howard said the cut undermined Gordon Brown's coming petrol tax rise, since it showed oil prices remained as "high and volatile" as at the Budget.

He said: "In the light of today's Opec decision and the rise in the oil price that followed, it is clear that the reasons the Chancellor gave for not putting up petrol tax in April still apply today."

• Opec's surprise decision to cut production levels caused the Dow Jones to plunge 150 points in New York last night. Meanwhile, the technology-dominated Nasdaq suffered its biggest one-day points loss in nearly 15 months, falling 58 as analysts highlighted the market's vulnerability after a six-month rally.